Thinking about starting a personal pension at 53

patricia1066

I'm in the category of women with SRA at 67 but has a small DB Pension which I will receive at 60. I am 53 and want to have the choice of retiring at 60.

I have savings of £90k which are getting poor returns in interest rates at present. My husband will retire at 66, in 6 years.

I'm about to start working again after a break, and want to boost my occupational pension and pay NI to receive the full srp at 67

My salary is £6000 pa, pension paid by employer 5% and I have been exploring the moneyadvice website to see what my contribution could get me. The assumptions are based on annuities and 5% increase every year on investment. I presume gilts wouldn't provide this but that would be my preference.

I'm considering paying up to 100% of my salary into the pension so my concern is that I will have my salary reduced to the point that I cannot get employer ni.

Any advice on contributions strategy and if a cautious approach could obtain the 5% return assumed over 7 to 13 years.

greenglide

I'm considering paying up to 100% of my salary into the pension so my concern is that I will have my salary reduced to the point that I cannot get employer ni.

NI contributions are only affected if the pension contributions are via Salary Sacrifice - are they?

Did you actually mean to say "Employees NI"? The employers NI are of no interest to you. If the salary subject to NI is between £5,824 and £8,062 per annum (£484 and £672 per month) you will be getting qualifying years without actually paying any money - brilliant!

patricia1066

The gross salary is £6000 so no ni is payable by me, and I get the employer NI. It's not salary sacrifice. So it seems that it's worth putting as much salary as I can into the scheme.

jamesd

Yes, as much as you can is good, drawing on savings instead. In effect what you'd be doing is gradually moving your savings into the pension to get the tax relief.

Don't use an annuity unless your health is poor. Deferring claiming your state pension will cause it to increase by 5.8% inflation-adjusted per year that you defer. Paying yourself out of savings or the work pending using drawdown would get you something like twice as much income for your money.

patricia1066

jamesd wrote: »

Yes, as much as you can is good, drawing on savings instead. In effect what you'd be doing is gradually moving your savings into the pension to get the tax relief.

Don't use an annuity unless your health is poor. Deferring claiming your state pension will cause it to increase by 5.8% inflation-adjusted per year that you defer. Paying yourself out of savings or the work pending using drawdown would get you something like twice as much income for your money.

Hi jamesd, that pension deferred or savings interest better off calculation is useful advice for my husband who will reach SRA in six years time, and may want to defer.

MY health is good, and annuities don't appeal. Nevertheless, the return on investment over less than 10 years is a concern to me. I don't expect 5% pa, maybe 20% over the best years.

Triumph13

If your DB is significantly less than the personal allowance then you can get a guaranteed 25% overall return just by putting the money into a pension.
You are in a crazy position where you can get NI years credited without paying any NI (salary above LEL, but below Primary Threshold) and then get tax relief without paying any tax when you put £4,800 a year into a SIPP or PP and HMRC kindly make it up to £6k (that's your instant 25% return). If you will have the slack between your DB and the personal allowance you can get it all out without paying any tax before starting your SP and therefore get to keep the full 25% increase even before you start to think about investment returns.

NordicNoir

patricia1066 wrote: »

The gross salary is £6000 so no ni is payable by me, and I get the employer NI. It's not salary sacrifice. So it seems that it's worth putting as much salary as I can into the scheme.

You mention that the pension is not salary sacrifice but do you know if it is a scheme that uses the 'net pay arrangement' or 'relief at source'? Also, is the £6,000 your only income?

If your scheme uses the 'net pay arrangement' your contributions are taken before you pay tax. If your income is only £6,000, you will not be paying tax, so effectively you will not be getting any tax relief on your contributions, as you have not paid any.

If it is a 'relief at source' scheme, the pension provider will be able to claim basic rate tax relief on your contributions even though you have not paid any tax.

If the scheme is 'net pay arrangement', as a low earner, you may find that it is better to minimise the use of your employer scheme to get the maximum employer contribution and then open a SIPP (or other pension that uses relief at source) for your extra contributions.

patricia1066

It's a issue that I am researching at the moment. My role is supporting the director as sole employee. I need to set up an occupation pension scheme, or as Autoenrollment isnt obligatory in the circumstances, set up a PP.

jennyjj

patricia1066 wrote: »

It's a issue that I am researching at the moment. My role is supporting the director as sole employee. I need to set up an occupation pension scheme, or as Autoenrollment isnt obligatory in the circumstances, set up a PP.

If your salary is below your tax free allowance, you should set up a pp or group pp which will reclaim tax on your behalf, even though none was paid. An OPS on the other hand would see your contributions taken from pretax pay and does not claim back tax.
With Relief at source, you benefit substantially. With net pay arrangement you are wasting your tax tree allowance.

patricia1066

Using the SRP deferral as a delayed annuity has limited use when the terms are and have been changed by regulation, and put into effect immediately.

The more people use this, the more pressure will be put to reflect actuarial costs, hence a reducing percentage for a deferred year. If there is no difference between an annuity and SRP deferral then better to take the pension.

However, as it has just been modified we can hope to rely on current values for the next 5 years. At least we know that at 77 annuities will be cheaper than at 67.

patricia1066

I have a question on fees for a PP. Is there a spreadsheet template to compare costs of running a sipp or other pension?

I looked at the monevator table, and find the costs are very hard to assess at a glance.

Should I look at this year's cost or the cost after 10 years? The first would incline to percentage based while the latter to a fixed amc .

Any recommendations on platform based on my objective of cautious investment?

I read that the TD platform currently allows investment in Vanguard funds, so total cost of investing is 2.2% pa.